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URL:  https://boards.fool.com/ranking-blackline-bl-on-my-homegrown-checklist-33089390.aspx

Subject:  Ranking BlackLine (BL) on my homegrown checklist Date:  6/6/2018  8:37 PM
Author:  TMFTypeoh Number:  13717 of 13725

Hey Fools,

I recently rolled out version 2.0 of my homegrown checklist. You can read more about the changes here: http://boards.fool.com/brian39s-quality-checklist-version-20...

Here's my attempt to rank BL


Metric (score potential) BL

Financial:

Financial Resilience:(0 - 5) 5
Gross Margin: (<50%, 50% to 80%, >80%) (0 - 3) 3
Returns On Capital: (Low, Average, Rising)(0 - 3) 1
FCF: (Negative / Positive / Positive and growing fast) (0 - 3) 2
EPS: (Negative / Positive / Positive and growing fast) (0 - 3) 2

Moat:
Network effect (None / Weak / Strong) (0 - 15)
Switching costs (None / Weak / Strong) (0 - 15) 15
Durable Cost Advantage:(0 - 15)
Intangibles: (0 - 15)
Moat Direction: (Narrowing / Stable / Widening) (0 - 5) 5 (more services)

Potential:
Optionality:(0 - 7) 5
Organic Growth Runway: (G.D.P. / 2x or 3x G.D.P. / 15%+) (0 - 4) 4
Top dog And/Or Industry Disruptor:(0 - 3) 3
Operating Leverage Ahead?(0 - 4) 4

Customers:
Acquisition:(0 - 5) 1 (expensive to onboard)
Dependence: (0 - 5) 5

Company-specific factors:
Recurring Revenue: (None / Some / Tons) (0 - 5) 5
Pricing Power: (None / Inflation / Tons) (0 - 5) 5

Management & Culture:
Soul in the game: (Founder/Family Run/Long Tenured CEO) (0 - 4) 4
Inside ownership: (None / Modest / Very High) (0 - 3) 3
Glassdoor ratings: (0 - 4) 3
Mission statement? (Simple, Inspirational, Optional-able) (0 - 3) 2

Stock:
Performance Vs. S&P 500:(0 - 4) 3
Shareholder Friendly Actions:(0 - 3) 0
Consistently Beats Expectations?(0 - 4) 3

Pre Gauntlet Score: 83 (excellent)

The Gauntlet

Customer Concentration:(-5 , -3, 0) 0
Industry Disruption:(-5, -3, 0) 0
Outside Forces:(-5, -3, 0) 0
Big Market Loser: (-5, -3, 0) 0
Binary Event: (-5, 0) 0
Extreme Dilution: (-4, -2, 0) 0
Growth By Acquisition: (-4, -2, 0) 0
Complicated Financials (-3, 0) 0
Antitrust Concerns: (-3, 0) 0
Political Risk: (-3, -2, 0) 0
Currency Risk:(-2, -1, 0)

Final score: 83 (excellent)


For perspective, the highest score possible is a 100, and the lowest score possible is -44.

BlackLine's 83 is super, super strong. In fact, the more I look at this business, the more I can't believe it isn't a rec in Fooldom (at least not yet).

Danny Vena has written a few great articles on Fool.com about what BlackLine does. I highly recommend you read them if you are interested.

https://www.fool.com/investing/2017/04/17/5-ways-blackline-i...

https://www.fool.com/investing/2017/03/07/how-blackline-plan...

I've become a BL shareholder myself and I look forward to following this business for years to come.

Brian

*******
FAQ:

Is there a spreadsheet that has all of your data?
Yes, but I do not want to make it publicly available. I will post on a company by company basis to the boards. Feel free to follow me if you want to see my most recent rankings.

What companies have received the highest scores so far?Alphabet (88), Paycom Software (86), MercadoLibre (85), Amazon (85), HubSpot (85), Adobe (84), Paylocity (84), and BlackLine (83)

What data do you have to show that this methodology works? Very little. I'm currently thinking through ways to measure its long-term effectiveness, but my gut feeling tells me that it will help me pick better stocks.

What about valuation? This data is only designed to help me determine business quality, which is far more important than valuation. Whenever I personally make buy/hold/sell decisions, I always consider valuation too, but I think it is small "f" foolish to not buy a truly great business just because of valuation concerns.
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